Russian energy giant Gazprom today halted gas supplies to Bulgaria and Poland for failing to pay for its gas in roubles, as Vladimir Putin ordered last month, pushing European gas prices up by 24 percent.
The decision is the Kremlin’s toughest response yet to crippling Western sanctions imposed over Moscow’s brutal on-going invasion of Ukraine, that have sent the Russian economy and the value of the rouble into a nosedive.
In response, the UK warned President Putin that Russia’s move will only add to its status as an economic and political pariah, while Poland and Bulgaria both said they will end their dependencies on Russian gas.
European Union Commission President Ursula von der Leyen called the move ‘yet another attempt by Russia to use gas as an instrument of blackmail. This is unjustified and unacceptable.’
The European Union could impose a crude oil embargo on Russia, with the two having been locked in a stand-off for weeks after the EU rejected Putin’s demands for payment in roubles from so-called ‘unfriendly’ buyers.
The market reacted quickly to the decision by state-owned Gazprom. Benchmark European gas prices jumped by up to 24 per cent to €121 (£102) per megawatt-hour today, to hit their highest level this month and almost seven times higher than they were a year ago. The UK equivalent increased by 14 per cent to 180 pence per therm.
The two EU countries are the first to have their gas cut off by Europe’s main supplier since the Kremlin launched what it calls a ‘special military operation’ in Ukraine on February 24, and after it threatened to turn off the taps to the West in response to mounting sanctions.
The war – which is now entering its third month – has killed thousands of people, displaced millions more and raised fears of a broader conflict with NATO, of which Poland and Bulgaria are members. It has also laid bare the extent of the EU’s dependence on Russian gas, which accounts for around 45 percent of its gas imports.
Last month, Putin ordered European countries to pay Gazprom, the world’s biggest natural gas company, in roubles after the West froze Russian assets and largely shut Moscow out of the West’s economic system.
Other EU countries have refused Putin’s order, but so far Poland and Bulgaria are the only two nations to see their Russian gas supplies halted. The EU said it was ‘prepared’ for Moscow to suspend gas supplies to the 27-nation bloc and is planning a ‘coordinated’ response.
Russian energy giant Gazprom on Wednesday halted gas supplies to Bulgaria and Poland for failing to pay for gas in roubles. Pictured: Valves and pipelines are pictured at the Gaz-System gas distribution station in Gustorzyn, central Poland (file photo)
EU, PAST WEEK: Benchmark European gas prices rose by up to 22 per cent on the day to €121 (£102) per megawatt-hour today
EU, PAST DECADE: Benchmark European gas prices today hit their highest level so far this month following Gazprom’s move
Energy exports by Russia have largely continued since the war began, in an exception to sanctions that have otherwise cut off Moscow from much of its trade with the West.
Ukraine has accused Russia of blackmailing Europe over energy in an attempt to break its allies’ resolve. In addition to placing heavy sanctions on Russia, EU countries as well as the likes of the UK, the US and Australia have been supplying Ukraine with weapons to aid its fight against the Russian invasion.
‘Gazprom has completely suspended gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) due to absence of payments in roubles,’ Gazprom said in a statement.
Gazprom also warned that transit via Poland and Bulgaria – which host pipelines supplying Germany, Hungary and Serbia – would be cut if gas was taken illegally.
Polish state-controlled gas utility company PGNiG later confirmed that Gazprom had ‘completely suspended’ the supply of gas to Poland via the Yamal pipeline.
‘Despite the fulfilment of all obligations under the Yamal contract by PGNiG, on April 27 this year, Gazprom has stopped delivering natural gas,’ the Polish group said in a statement.
‘The limitation of natural gas supplies is a breach of the Yamal contract. PGNiG reserves the right to pursue claims in connection with the suspension of deliveries and will use all contractual rights vested in the company and rights under the law.’
Putin had demanded countries he terms ‘unfriendly’ agree to a scheme under which they would open accounts at Gazprombank (a bank founded in 1990 specifically to serve Gazprom) and make payments for Russian gas imports in euros or dollars that would be converted into roubles.
Britain’s Deputy Prime Minister Dominic Raab slammed Russia’s decision, saying it will only serve to add to its status as an economic and political pariah.
‘We have been warning about this for a while but we will stand shoulder to shoulder with our Polish friends and allies,’ Raab told Sky News.
‘It (halting gas supply) will have a … very damaging effect on Russia as well because it is becoming further and further, more and more, not just a political pariah, but an economic pariah.’
Britain’s Deputy Prime Minister Dominic Raab (pictured earlier this month) slammed Russia’s decision, saying it will only serve to add to its status as an economic and political pariah
Pictured: A map showing gas pipelines that enter Europe from Russia
ANALYSIS: How energy is increasingly weaponised
By SUSANNAH STREETER
Energy is being increasingly weaponised as the war in Ukraine looks set to enter the long haul and expectations grow that a crude oil embargo will end up being slapped on Russia by the EU.
For now the tit for tat retaliation centres around gas supplies, with Russia turning off the taps to Poland and Bulgaria after both nations’ refusal to pay in roubles.
Sanctions isolating from Russia from the global financial systems have prompted this strategy to drive a rouble rebound, after the currency went into freefall following the invasion, and it’s been working helped by the initial 20 per cent interest rate hike and currency controls.
High incoming tax receipts expected have helped push up the currency this week.
But if Russia’s customers continue to refuse to sign contracts in roubles, and accelerate efforts to find other sources of energy as they have pledged to do, these revenue streams risk turning into a trickle putting fresh pressure on the rouble.
This latest move by Russia is also expected to pile pressure on Germany to relent in its opposition to a crude embargo.
The expectation of another supply squeeze on global markets if more consumers turn their back on Russian oil has pushed up Brent crude above $106 (£84) a barrel.
Susannah Streeter is a senior investment and markets analyst at Hargreaves Lansdown
Poland has repeatedly said it will not pay for Russian gas in roubles and has planned not to extend its gas contract with Gazprom after it expires in the end of this year.
‘Payments for gas supplied from April 1 must be made in roubles using the new payments details, about which the counterparties were informed in a timely manner,’ Gazprom said on Wednesday.
Bulgaria’s energy minister Alexander Nikolov told reporters on Wednesday that his country had already paid for Russian gas deliveries for April, and halting gas supplies would be a breach of its current contract with Gazprom.
He said Bulgaria would observe the European Commission’s stance urging countries not to pay in roubles for Russian gas as demanded by Putin.
‘Because all trade and legal obligations are being observed, it is clear that at the moment the natural gas is being used more as a political and economic weapon in the current war,’ Nikolov said.
Bulgaria said it was working with state gas companies to find alternative sources and no restrictions on domestic consumption would be imposed for now, even though the Balkan country of 6.5 million people meets more than 90% of its gas needs with Russian imports.
Nikolov said Bulgaria can meet the needs of users for at least one month, and said that gas was still flowing as he spoke.
‘Alternative supplies are available, and Bulgaria hopes that alternative routes and supplies will also be secured at EU level,’ Nikolov said referring to an EU expert meeting due later Wednesday to plan the next steps. He added that Poland and Lithuania are in the same situation as Bulgaria.
‘Obviously gas is used as a political tool,’ he said. ‘As long as I am Minister, Bulgaria will not negotiate under pressure, Bulgaria is not for sale and does not succumb to any trade counterpart.’
In Poland, prior to Russia cutting the country’s supply, the country’s climate minister Anna Moskwa said the country was prepared for the situation as it had worked for years to reduce reliance on Russian energy.
‘There will be no shortage of gas in Polish homes,’ Ms Moskwa wrote on Twitter. ‘Since the first day of the war we have declared that we are ready for full independence from Russian raw materials.
‘Poland has the necessary gas reserves and sources of supply to protect our security. For years we have been successfully making ourselves independent from Russia,’ she added.
Poland’s prime minister lashed out at Russia for trying to ‘blackmail’ his country with the abrupt cutoff of gas supplies. He said he believes the move was revenge for new sanctions that Warsaw imposed this week against Russia.
The sanctions announced Tuesday targeted 50 Russian oligarchs and companies, including Gazprom. Hours later Poland said it had received notice that Gazprom was cutting off supplies to Poland for failing to comply with new demands to pay in Russian rubles.
Speaking to the Polish parliament, Prime Minister Mateusz Morawiecki vowed that Poland would not be cowed by the gas cutoff. He said Poland was safe thanks to years of efforts aimed at securing gas from other countries.
Lawmakers stood and applauded when he said that Russia’s ‘gas blackmail’ would have no effect on his country.
Russian made up some 45% of Poland’s overall gas usage until the cutoff. But Poland is far more reliant on coal to heat homes and fuel industry, with gas accounting for only 9% of the country’s overall energy mix.
Russian supplies were also due to end later this year in any case. Poland has made plans to get its supplies from other countries, including Norway. A new pipeline, ‘Baltic Pipe,’ is due to become operational in autumn.
Furthermore, Warsaw’s underground gas storage tanks are said to be 80 per cent full and, with summer approaching, demand will be lower. However, a long-term suspension could lead to restrictions on manufacturers, some of Poland’s biggest gas consumers.
The spike in gas prices comes even as the weather turns warmer in the Europe, lessening the demand for the natural gas for heating homes and businesses.
Russian President Vladimir Putin ordered European countries to pay Gazprom, the world’s biggest natural gas company, in roubles after the West froze Russian assets and largely cut Moscow out of the West’s economic system. Pictured: A Gazprom logo seen in Russia
Putin demanded countries he terms ‘unfriendly’ agree to a scheme under which they would open accounts at Gazprombank and make payments for Russian gas imports in euros or dollars that would be converted into roubles
Gazprom’s decision to cut gas to two European countries was another dark turn in the war, which has revived the geopolitical rifts of the Cold War and had an immediate impact. European gas prices spiked by as much as 24 percent.
Fatih Birol, the executive director of the Paris-based International Energy Agency, called the move a ‘weaponization of energy supplies’ in a tweet.
‘Gazprom’s move to completely shut off gas supplies to Poland is yet another sign of Russia’s politicization of existing agreements & will only accelerate European efforts to move away from Russian energy supplies,’ he wrote. He said the Russia’s decision ‘makes it clearer than ever that Europe needs to move quickly to reduce its reliance on Russian energy.’
EU Commission President Ursula von der Leyen called the move ‘yet another attempt by Russia to use gas as an instrument of blackmail. This is unjustified and unacceptable.’
‘The announcement by Gazprom that it is unilaterally stopping delivery of gas to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail,’ von der Leyen said in a statement.
‘This is unjustified and unacceptable. And it shows once again the unreliability of Russia as a gas supplier,’ she said.
Von der Leyen said the EU was prepared for this scenario, and would continue its work to ensure alternative supplies of gas and ensure gas storage is filled. EU rules require all countries to have a contingency plan to cope with a gas supply shock.
Von der Leyen said the EU was working on a coordinated response to Russia’s escalation, and its ‘gas coordination group’ of representatives from national governments and the gas industry was meeting on Wednesday morning.
Andriy Yermak, chief of staff to Ukraine’s President Volodymyr Zelensky, said Russia was ‘beginning the gas blackmail of Europe’. He added: ‘Russia is trying to shatter the unity of our allies.’
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown in London, told MailOnline today: ‘Energy is being increasingly weaponised as the war in Ukraine looks set to enter the long haul and expectations grow that a crude oil embargo will end up being slapped on Russia by the EU.
‘Sanctions isolating from Russia from the global financial systems have prompted this strategy to drive a rouble rebound, after the currency went into freefall following the invasion, and it’s been working helped by the initial 20 per cent interest rate hike and currency controls.
‘High incoming tax receipts expected have helped push up the currency this week.
‘But if Russia’s customers continue to refuse to sign contracts in roubles, and accelerate efforts to find other sources of energy as they have pledged to do, these revenue streams risk turning into a trickle putting fresh pressure on the rouble.’
She added: ‘This latest move by Russia is also expected to pile pressure on Germany to relent in its opposition to a crude embargo. The expectation of another supply squeeze on global markets if more consumers turn their back on Russian oil has pushed up Brent crude above $106 (£84) a barrel.’
This handout picture released on April 26, 2022 by the Transnistrian Interior Ministry shows antennas of the ‘Mayak’ radio centre lying on the ground following the blasts in the village of Mayak in Grigoriopolsky district in Moldova’s Russian-backed breakaway Transnistria region
Several explosions were heard in Belgorod early Wednesday morning. Pictured: An ammunition depot burns near the village of Staraya Nelidovka
Moscow’s move is its latest use of gas as a weapon in a conflict that has now dragged into its third month and claimed thousands of lives.
Explosions this week targeting the state security ministry, a radio tower and military unit in neighbouring Moldova’s region of Transnistria – occupied by Moscow’s forces for decades – followed a Kremlin commander’s claims Russian speakers in the country were being oppressed.
That triggered alarm that Moldova could be Russia’s next target in its push into Europe, with Moscow having exploited similar fears after launching its bloody invasion of Ukraine on February 24.
‘Russia wants to destabilise the Transnistrian region,’ Mykhaylo Podolyak, a Ukraine presidential aide, wrote on Twitter.
‘If Ukraine falls, tomorrow Russian troops will be at Chisinau’s gates,’ he said, referring to Moldova’s capital.
The United States echoed similar concerns – though stopped short of backing Kyiv’s contention that Russia was responsible.
‘We fully support Moldova’s territorial integrity and sovereignty,’ State Department spokesman Ned Price told reporters.
Ukraine’s President Volodymyr Zelensky has been lobbying for heavier firepower to push back the Russian advance now focused on the eastern region of Donbas.
Western allies are wary of being drawn into an outright war with Russia, but Washington pledged Tuesday at a summit to move ‘heaven and earth’ to enable Ukraine to emerge victorious.
Meanwhile, blasts were heard in the early hours of Wednesday in three Russian provinces bordering Ukraine, authorities said, and an ammunition depot in the Belgorod province caught fire.
The regional governor said the blaze near Staraya Nelidovka village had been put out and no civilians had been hurt.
Russia this month accused Ukraine of attacking a fuel depot in Belgorod with helicopters and opening fire on several villages in the province.
A massive fire also broke out this week at a fuel depot in nearby Bryansk. Ukraine does not confirm responsibility for reported incidents on Russian territory.